Sino Grandness

[Young Investor]

Hi CY09 and Boon,

Okay, page 9 of the 3Q results announcement says "Non-cash interest costs relating to convertible bonds decreased from RMB67.4m in 9M2014 to and assumed an income position of RMB24.8m in 9M2015"

Wah how does non-interest cost assume an income position ? That means Garden Fresh borrow money still can earn money on interest ?

So according to your method, this is part of their on-going operation la, making money out of borrowing money.

Since you say your method is right, can your method of calculation explain this phenomenon ? and what is the logic behind it ?

Hi crubs,
 
Please refer to page 118 and 119 of AR2014
 
Can you explain why there was a need for an adjustment in FY2013.
 
Interest expense was adjusted from 19.102 m to 88.818m.
 
Changes in fair value of option derivatives in relation to convertible bonds had been adjusted from zero to 43.638 m.
 
This is relevant to your question, I believe.
___________________________________________________________________________________________________________________________________

Hi Mr Boon
Please do not ask unnecessary questions. The note in pg 118 already explains why adjustment was made.
The question now is why there was a 'positive' interest income of RMB 187m in 3Q 15.   
You have not answered Crubs question on making money out of borrowing money.

[CityFarmer]

Let me share an experience in debating.

Digging into detail(s), without keeping the bigger picture, will drag everyone into a "spinning", and might lead to more confusion, rather than clarity.

I was debating the infamous moon landing conspiracy, and once dragged into a few details, I was lost, and speak-less to response, although I am very sure the fallacy of the conspiracy, with clear evidence of tracks and landing module in Moon.

I am not saying who is right and wrong, but I am sure, the debate is at a spinning now.

Let's pull out from the debate, and let's wait for next important input, from the upcoming EGM, from shareholders here. We will restart the debate by then.

I am sure the debate started with good faith, albeit noises along the way.

What do you all think? Boon and crub?

Regards
Moderator CF

[Retired@52]

Let me share an experience in debating.

Digging into detail(s), without keeping the bigger picture, will drag everyone into a "spinning", and might lead to more confusion, rather than clarity.

I was debating the infamous moon landing conspiracy, and once dragged into a few details, I was lost, and speak-less to response, although I am very sure the fallacy of the conspiracy, with clear evidence of tracks and landing module in Moon.

I am not saying who is right and wrong, but I am sure, the debate is at a spinning now.

Let's pull out from the debate, and let's wait for next important input, from the upcoming EGM, from shareholders here. We will restart the debate by then.

I am sure the debate started with good faith, albeit noises along the way.

What do you all think? Boon and crub?

Regards
Moderator CF

Boon & Crubs, I'm impressed with your knowledge but don't waste too much energy on this company. Time will tell. (Give 3 to 5 years, the true story will appear).

9 years ago, when I retired with 10 years of Formal Financial Education & 20 years of Investing Experience I debated with some Stock Investors on the potential of the S-Chips. I laid many facts & figures on the table. (I won the debate by lost the battle). This is called the Winner's Curse.

I never trade, speculate or gamble. I invested based on Fundamentals only. I lost almost half a Million Dollar, all to the S-Chips. Big chunk of my Retirement Fund gone for good. Do I still trust the "Facts & Figures" of these  Ass-Chips & their Lawyers their Independent Directors? You know the answer!

I agree with CityFarmer. Maybe few of us can meet to shake hand and have a cup of coffee and close the matter.

[Boon]

Hi CY09 and Boon,

Okay, page 9 of the 3Q results announcement says "Non-cash interest costs relating to convertible bonds decreased from RMB67.4m in 9M2014 to and assumed an income position of RMB24.8m in 9M2015"

Wah how does non-interest cost assume an income position ? That means Garden Fresh borrow money still can earn money on interest ?

So according to your method, this is part of their on-going operation la, making money out of borrowing money.

Since you say your method is right, can your method of calculation explain this phenomenon ? and what is the logic behind it ?

Hi crubs,
 
Please refer to page 118 and 119 of AR2014
 
Can you explain why there was a need for an adjustment in FY2013.
 
Interest expense was adjusted from 19.102 m to 88.818m.
 
Changes in fair value of option derivatives in relation to convertible bonds had been adjusted from zero to 43.638 m.
 
This is relevant to your question, I believe.
___________________________________________________________________________________________________________________________________

Hi Mr Boon
Please do not ask unnecessary questions. The note in pg 118 already explains why adjustment was made.
The question now is why there was a 'positive' interest income of RMB 187m in 3Q 15.   
You have not answered Crubs question on making money out of borrowing money.

Ha-ha! 

If SG has the so called skill in "making money out of borrowing money", why don't they apply it in FY2013 ? Do you know what difference would it make?

Wondering why this skill emerged only after the expiry of both CB1 and CB2. 
__________________________________________________________________________________________________________________________________

[portuser]

In Sino Grandness' 2014 annual report, reference to adjusted profit was made thrice, in page 6, 8 and 14.

In page 6 and 14, adjusted profit was defined as the sum of:
(a) net profit attributable to shareholders,
(b) changes in fair value of the option derivatives in relation to convertible bonds, and
© non-cash interest expenses of convertible bonds.

In every subsequent press release accompanying quarterly results announcement, adjusted profit was disclosed, and the management has said that adjusted profit is the profitability measure for Sino Grandness as well as Garden Fresh.

An assertion has been made in this forum that the true profitability measure should be the sum of (a) and (b) only; and © ought to be excluded.

At first glance, this alternative measure, which excludes non-cash interest expenses, will give rise to lower numbers. 

But not so in 3Q 15, when Sino Grandness reported huge 'positive' finance costs of RMB 187.12m, which would be counter-intuitive to us (table A below).

The strange result came from the valuer (table B below). Note that liability component decreased as much as RMB 188m, whereas option derivatives rose by RMB 244m. How the valuer arrived at these, we do not know. I was told that assumptions are made to a large array of data before they are fed into the computer to churn out the results. Adjusted profit ignores the valuation results altogether. 

The following table compares the adjusted profit (adopted by Sino Grandness) and the alternative measure (advocated in this forum) for 3Q 15 and 9-month 15:


................Adjusted profit (RMB m)..........Alternative measure
3Q 15.............................133.0..............................321.2
3Q 14.............................209.6...............................201.3

9-month 15.....................423.2...............................448.0
9-month 14.....................448.3...............................380.9

The 'positive' interest costs in 3Q 15 gave rise to higher profits under the alternative measure.

It will be good to attend the EGM to find out more.   


  
Table A (RMB m)


..................................................3Q 15.......3Q 14
Revenue...................................949.60...1,030.51
Gross profit...............................385.31......410.18
..............................................................................
Distribution &
selling expenses......................(190.87)...(102.62)
Finance costs..........................187.12......(22.71)..........strange 'positive' RMB 187.12m finance costs

Profit before tax & change
in fair value of the option 
derivatives in relation to CBs.....371.21......271.41

Change in fair value of 
the option derivatives
in relation to CBs......................(244.38).....(15.14)

Profit before tax..........................126.83......256.27

Attributable profit..........................76.85......186.12




Table B

................................................................................................RMB m

.................................................................end-June 15.......end-Sep 15.......Variance
Liability component at amortised cost...............647.86...............459.61........(188.25)
Option derivatives at fair value..........................130.11...............374.49.........244.38
Total..................................................................777.97...............834.10...........56.13

[Oldman9]

Hi CY09 and Boon,

Okay, page 9 of the 3Q results announcement says "Non-cash interest costs relating to convertible bonds decreased from RMB67.4m in 9M2014 to and assumed an income position of RMB24.8m in 9M2015"

Wah how does non-interest cost assume an income position ? That means Garden Fresh borrow money still can earn money on interest ?

So according to your method, this is part of their on-going operation la, making money out of borrowing money.

Since you say your method is right, can your method of calculation explain this phenomenon ? and what is the logic behind it ?

Hi crubs,
 
Please refer to page 118 and 119 of AR2014
 
Can you explain why there was a need for an adjustment in FY2013.
 
Interest expense was adjusted from 19.102 m to 88.818m.
 
Changes in fair value of option derivatives in relation to convertible bonds had been adjusted from zero to 43.638 m.
 
This is relevant to your question, I believe.
___________________________________________________________________________________________________________________________________

Hi Mr Boon
Please do not ask unnecessary questions. The note in pg 118 already explains why adjustment was made.
The question now is why there was a 'positive' interest income of RMB 187m in 3Q 15.   
You have not answered Crubs question on making money out of borrowing money.

Ha-ha! 

If SG has the so called skill in "making money out of borrowing money", why don't they apply it in FY2013 ? Do you know what difference would it make?

Wondering why this skill emerged only after the expiry of both CB1 and CB2. 
__________________________________________________________________________________________________________________________________

Hi Boon

SG does not have the skill. The Valuer does.

cheers
oldman9

[crubs]

Hi CityFarmer,

I agree with you and will not be commenting on this issue until after the EGM as the debate has turned unproductive. But I would like to type this last post on the issue to explain the logic behind the arguments that have taken place to address your idea of it "spinning"

As Portuser has mentioned in post #1325, "An assertion has been made in this forum that the true profitability measure should be the sum of (a) and (b) only; and © ought to be excluded."

Whereby, "In page 6 and 14, adjusted profit was defined as the sum of:
(a) net profit attributable to shareholders,
(b) changes in fair value of the option derivatives in relation to convertible bonds, and
© non-cash interest expenses of convertible bonds."

This revolves around the claimant's reasoning that © does not fall under the definition of "extraordinary"

Defining what constitutes "extraordinary" is important because as stated in the 2012 circular, "For the avoidance of doubt, costs and expenses incurred in connection with the Qualifying IPO and any extraordinary items shall not be taken into account in determining “Net Profit”."

The issue started with a debate on what is "extraordinary" but yielded no results.

As such, giving the claimant the benefit of doubt, forumers have been trying to seek more clarification on the logic behind the assertion which includes pointing out that the application of the claimant's assertion have produced very confusing and unexplainable outcomes.

As all attempts to obtain some clarity have failed, the discussion has turned unproductive.

[CityFarmer]

Thank you curbs.

Further input into the closure, and for a good start in the future.

In a forum platform e.g. VB, the ultimate aim, isn't to convince everyone, but to make sure fallacies are highlighted, and facts are well presented against perceptions. I always have high confidence on the wisdom of our VB buddies and our guest readers. 

Thank you

Regards
Moderator

[Boon]

In Sino Grandness' 2014 annual report, reference to adjusted profit was made thrice, in page 6, 8 and 14.

In page 6 and 14, adjusted profit was defined as the sum of:
(a) net profit attributable to shareholders,
(b) changes in fair value of the option derivatives in relation to convertible bonds, and
© non-cash interest expenses of convertible bonds.

In every subsequent press release accompanying quarterly results announcement, adjusted profit was disclosed, and the management has said that adjusted profit is the profitability measure for Sino Grandness as well as Garden Fresh.

An assertion has been made in this forum that the true profitability measure should be the sum of (a) and (b) only; and © ought to be excluded.

At first glance, this alternative measure, which excludes non-cash interest expenses, will give rise to lower numbers. 

But not so in 3Q 15, when Sino Grandness reported huge 'positive' finance costs of RMB 187.12m, which would be counter-intuitive to us (table A below).

The strange result came from the valuer (table B below). Note that liability component decreased as much as RMB 188m, whereas option derivatives rose by RMB 244m. How the valuer arrived at these, we do not know. I was told that assumptions are made to a large array of data before they are fed into the computer to churn out the results. Adjusted profit ignores the valuation results altogether. 

The following table compares the adjusted profit (adopted by Sino Grandness) and the alternative measure (advocated in this forum) for 3Q 15 and 9-month 15:


................Adjusted profit (RMB m)..........Alternative measure
3Q 15.............................133.0..............................321.2
3Q 14.............................209.6...............................201.3

9-month 15.....................423.2...............................448.0
9-month 14.....................448.3...............................380.9

The 'positive' interest costs in 3Q 15 gave rise to higher profits under the alternative measure.

It will be good to attend the EGM to find out more.   


  
Table A (RMB m)


..................................................3Q 15.......3Q 14
Revenue...................................949.60...1,030.51
Gross profit...............................385.31......410.18
..............................................................................
Distribution &
selling expenses......................(190.87)...(102.62)
Finance costs..........................187.12......(22.71)..........strange 'positive' RMB 187.12m finance costs

Profit before tax & change
in fair value of the option 
derivatives in relation to CBs.....371.21......271.41

Change in fair value of 
the option derivatives
in relation to CBs......................(244.38).....(15.14)

Profit before tax..........................126.83......256.27

Attributable profit..........................76.85......186.12




Table B

................................................................................................RMB m

.................................................................end-June 15.......end-Sep 15.......Variance
Liability component at amortised cost...............647.86...............459.61........(188.25)
Option derivatives at fair value..........................130.11...............374.49.........244.38
Total..................................................................777.97...............834.10...........56.13

Hi portuser,

In determining the aggregate conversion proportion of CB1 and CB2, 

who told me that FY2014 reference net profit was out of scope?

Who told me that FY2012 Reference Net Profit was irrelevant?

Who told me that the Reference Net Profit financial year was FY2013 ? 

So what is the relevance of FY2015 numbers?

You can define net profit in any other way you like and for any other purposes but for the purpose for determining the aggregate conversion proportion of CB1 and CB2, there is contract that one has to adhere by.

http://www.valuebuddies.com/thread-3371-...#pid125702

Hahaha!
_________________________________________________________________________________________________________________________________

[Boon]

Hi CY09 and Boon,

Okay, page 9 of the 3Q results announcement says "Non-cash interest costs relating to convertible bonds decreased from RMB67.4m in 9M2014 to and assumed an income position of RMB24.8m in 9M2015"

Wah how does non-interest cost assume an income position ? That means Garden Fresh borrow money still can earn money on interest ?

So according to your method, this is part of their on-going operation la, making money out of borrowing money.

Since you say your method is right, can your method of calculation explain this phenomenon ? and what is the logic behind it ?

Hi crubs,
 
Please refer to page 118 and 119 of AR2014
 
Can you explain why there was a need for an adjustment in FY2013.
 
Interest expense was adjusted from 19.102 m to 88.818m.
 
Changes in fair value of option derivatives in relation to convertible bonds had been adjusted from zero to 43.638 m.
 
This is relevant to your question, I believe.
___________________________________________________________________________________________________________________________________

Hi Mr Boon
Please do not ask unnecessary questions. The note in pg 118 already explains why adjustment was made.
The question now is why there was a 'positive' interest income of RMB 187m in 3Q 15.   
You have not answered Crubs question on making money out of borrowing money.

Ha-ha! 

If SG has the so called skill in "making money out of borrowing money", why don't they apply it in FY2013 ? Do you know what difference would it make?

Wondering why this skill emerged only after the expiry of both CB1 and CB2. 
__________________________________________________________________________________________________________________________________

Hi Boon

SG does not have the skill. The Valuer does.

cheers
oldman9

Hi oldman9,

True, so why did the valuer adjust the interest expense UP in FY2013, hence making the Reference Net Profit (RNP) lower.

If RNP of Listco in FY2013 fell below RMB 250 m, aggregate conversion proportion of CB1 and CB2 will be HIGHER than if RNP was above RMB250 m
______________________________________________________________________________________________________________________________________